The Ministry of Economic Development (MED) has released a
consultation draft of the Commerce (Cartels and Other Matters) Amendment Bill
(draft Bill). The draft Bill proposes a number of reforms to
the Commerce Act 1986 (Commerce Act), including criminalisation
of cartel conduct. Recognising concerns expressed during earlier consultation
about the possible chilling effect of criminalisation on pro-competitive
activity, a stated purpose of the draft Bill is to test whether it is possible
to define with sufficient clarity the "hard-core" cartel conduct that is subject
to criminal sanctions.
Key features of the draft Bill
New cartel prohibition
The current price fixing prohibition (section 30) deems a provision that has
the purpose, effect or likely effect of fixing prices to substantially lessen
competition under section 27. The draft Bill expands this prohibition to
specifically include provisions with the purpose of price fixing, restricting
output, market allocating or bid rigging. This new cartel provision focuses only
on the requisite purpose – the effect or likely effect of the conduct in
question is no longer relevant. The MED considers that this form-based approach
gives greater certainty as to the type of conduct that is prohibited, but it
also places greater reliance on exemptions (and places the onus on defendants to
prove that the exemptions apply).
New criminal offences
The draft Bill makes it a criminal offence to enter into or give effect to a
cartel provision with the knowledge that it is a cartel provision. The maximum
penalties are imprisonment for up to 7 years for an individual and, for a body
corporate, a fine of up to the greater of $10 million, 3 times the commercial
gain from the conduct (where "readily ascertainable"), or 10% of the turnover of
the body corporate.
New "collaborative activities" exemption
The draft Bill replaces the current joint venture exception under section 31
with a new, broad exemption for "collaborative activities" carried on in
cooperation by two or more persons and not carried on for the dominant purpose
of lessening competition.
Clearances for "collaborative activities"
The draft Bill also provides a new regime under which the Commission is able
to grant clearance for collaborative activities containing cartel provisions
where the cartel provision is reasonably necessary for the purpose of a
collaborative activity and the activity will not have, or would not be likely to
have, the effect of substantially lessening competition in a market.
Penalties for non-compliance with Commerce Commission notices
The current penalties for non-compliance with notices issued by the
Commission under section 98 of the Commerce Act are maximum fines of $10,000 in
the case of an individual and $30,000 in the case of a body corporate per
breach. The draft Bill increases these significantly to 18 months imprisonment
for an individual or $1 million for a company.
Declaration relating to acquisitions by overseas persons
The Commerce Act currently applies to overseas acquisitions to the extent
that the acquisition affects a market in New Zealand (section 4(3)). The draft
Bill introduces a new, more limited regime for overseas mergers. Under this
regime the Commission may obtain a declaration that the acquisition by an
overseas person of a controlling interest in a New Zealand company has, or will
have, or is likely to have, the effect of substantially lessening competition in
a market in New Zealand, and that company must then cease carrying on business
in New Zealand.. A "New Zealand company" is a company – whether registered in
New Zealand or overseas – that does business in New Zealand.
Removal of exemption for trade associations
The draft Bill repeals the existing exemption for price recommendations made
by trade associations with 50 or more members. The exemption was designed to
afford relief from Section 2(8) of the Act which deems any recommendation issued
by an association or body of persons to its members to be an arrangement between
those members, and between the association and those members, However, the
exemption only applies to recommendations, any attempt to enforce the
recommendation would not be protected by the exemption. The OECD considers there
is little economic justification for this exemption and has specifically
recommended it be repealed.
The MED invites submissions on the draft Bill. Submissions are due by 22 July
We will keep you updated with further developments. In the mean time, if you
have any questions or would like assistance with making a submission of your
own, please contact your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.